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19 Oct

Property Service Charge - A necessary evil or an opportunity to add value?

What are Service Charges? 

In the circumstances where an owned or rented property is part of a larger development with shared services, common areas and defined relationships between fellow owners and occupiers, a need exists to put a structure in place to manage the common areas, shared responsibilities and provision of shared services. Hence the creation of “The Management Company”. 

The Management Company assumes the role of taking responsibility for the Common Areas in the development, managing the provision of shared services and also overseeing the relationships and interactions between the owner/occupier and the other stakeholders in the development. 

Typically, The Management Company will appoint a professional Managing Agent to carry out the day to day management duties under the directors of the Management Company. 

Service Charges are the costs associated with the operation of the Management Company and the provision of the services thereunder. Typical Service Charge headings would include: 

• Insurance of Common Areas 
• Public Lighting 
• Cleaning 
• Repairs and Maintenance 
• Sinking Fund 
• Waste Disposal 
• Security 

This is merely an indicative list, full service requirements and costs will vary from development to development. 

Residential –v- Commercial Service Charges 

In theory, there is no difference between service charges payable in respect of Commercial Properties and those payable in respect of Residential Properties in that the cost of the provision of services is apportioned amongst the stakeholders in the development in accordance with their obligations to the Management Company. The actual services required to be provided may differ to reflect the different needs of commercial activities but the principle of the common costs being incurred by The Management Company and apportioned to the owners/occupiers as Service Charges remains the same. 

However, it should be recognised that the Multi Units Development Act, 2011 was introduced to legislate for the structures to be applied to Multi Unit Residential Developments and Mixed Use Multi Unit Developments (relating to service that are shared between residential and commercial units only). 

The operation of a service charge regime for commercial developments is currently unregulated by statute, however, normal commercial considerations typically put in place a structure that reflects the nature of the commercial activity being undertaken and the varied interests of the stakeholders in that development. 

In essence, the principle of Service Charges in unchanged for Residential and commercial developments however differences in the practical implementation of an appropriate regime will exist to reflect the Legislative requirements for Residential Units and the nature of services that may attach to commercial activities. 

A Necessary Evil or an opportunity to add value? 

Many commentators refer to Service Charges as being an additional cost when compared to similar properties that exist in a stand-alone environment. However, they do not recognise the costs included in the Service Charges for which they might otherwise be liable such as Waste Disposal and Buildings Insurance. They also fail to recognise the additional services that are provided to owner/occupiers in Multi Unit Developments. Service Charges are a cost but they should represent a “value for money” cost for the provision of desired services which form part of the attraction of being part of a Multi-Unit Development. 

An effectively designed and operated Management Company structure affords owner/occupiers the opportunity to add value to their interests. Tightly operated budgets and costs, coupled with the provision of first class services can differentiate your property and add to its capital value or enhance the rental levels to be achieved, as well as improving its marketability. 

Multi Unit Developments and the Service Charges attaching to them are a reality in this post Celtic Tiger age. The challenge is to ensure that the charges involved represent good value for money and are supported by the provision of first class services. The design and operation of an appropriate management structure by a suitably qualified service provider will ensure that this can be achieved. All owners/occupiers want to protect the value of their interests and also want to be able to avail of the services necessary for the enjoyment of their property, residential or commercial. 

Recognition of the impact of an appropriate service charge regime on marketability and value of property should encourage Stakeholders to pay greater interest to the design and operation of Management Companies in which they have an interest. This is an opportunity to Add Value that is too frequently ignored. 

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